Borrowers who can't afford their mortgage payment may want to take a look at the Home Affordable Modification program, which is part of the Obama administration's Making Home Affordable plan.

The Home Affordable Modification program creates a uniform process for loan servicers to modify existing mortgages for homeowners who meet the following two conditions:

They spend more than 31 percent of their income on monthly housing costs.

They already are delinquent or in imminent danger of default because of a major change in their financial situation.

The rules are complicated. The federal government has issued top-level guidelines, but Fannie Mae and Freddie Mac have their own specific guidelines. In addition, lenders, loan servicers and mortgage insurers may have their own requirements as well.

The program was introduced primarily for mortgages owned or secured by Fannie Mae and Freddie Mac; however, other mortgages may also qualify if the loan servicer chooses to offer this program.

advertisement

Borrowers are advised to call their loan servicer to discuss their situation. Many of these servicers are overwhelmed with customer inquiries, so you'll need to be patient and persistent.

While you're on hold, read our summary of the guidelines from the government and Fannie and Freddie.

Borrower requirements

The borrower must have missed a mortgage payment or be at risk of imminent default because of a significant increase in the payment or other household expenses, a significant reduction in income, or another type of hardship that makes the payment unaffordable.

Borrowers whose mortgage is in foreclosure are eligible, according to Fannie Mae and Freddie Mac guidelines. Foreclosure will be stayed on loans owned or secured by Fannie Mae or Freddie Mac during the loan modification process, subject to state law.

Borrowers who are in bankruptcy may be eligible.

Borrowers must document their income and expenses and provide evidence of hardship or a major adverse change in their financial situation.

Fannie Mae and Freddie Mac require a credit report, but no minimum or maximum credit score.

The borrower must sign a loan modification agreement, hardship letter and other documents.

Misrepresentation of the borrower's qualifications is a federal crime.

Second/vacation homes, rental properties and vacant homes are not eligible.

The property is subject to a value test to determine if the loan modification makes sense for the investor. A borrower who has a lot of equity in his or her home or whose income is very low relative to the home's value may not pass this test.

Existing mortgage

The borrower's monthly mortgage payment, property taxes, homeowners insurance and homeowner association dues must be more than 31 percent of the borrower's monthly income before income tax.

Bankrate wants to hear from you and encourages thoughtful and constructive comments. We ask that you stay focused on the story topic, respect other people's opinions, and avoid profanity, offensive statements, illegal contents and advertisement posts. Comments are not reviewed before they are posted. Bankrate reserves the right (but is not obligated) to edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused. We do not permit the inclusion of hyperlinks in comments and may remove any comment that includes a hyperlink.

Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on certain links posted on this website.